a

GAO

United States General Accounting Office

Report to the Secretary of Housing and 

Urban Development

April 2003 HUD PURCHASE 

CARDS

Poor Internal Controls 

Resulted in Improper 

and Questionable 

Purchases

GAO-03-489
Significant internal control weaknesses in HUD’s approximately 

$10.6 million purchase card program resulted in improper, potentially 

improper, and questionable purchases in fiscal year 2001. Because of these 

internal control weaknesses, there was often inadequate documentation 

supporting many purchases GAO reviewed, and as a result, GAO was unable 

to determine whether these purchases were a valid use of government funds. 

GAO also found that HUD’s remedial action plan for its purchase card 

program does not adequately address all the control weaknesses we 

identified. 

These weaknesses created an environment in which improper purchases 

could be made with little risk of detection and likely contributed to the 

$2.3 million in improper, potentially improper, and questionable purchases 

GAO identified. GAO found improper and potentially improper purchases 

totaling about $1 million where HUD employees either split or appeared to 

have split purchases into multiple transactions to circumvent cardholder 

limits. GAO also found that HUD employees lacked adequate supporting 

documentation for about $1.3 million in questionable purchases including 

those from vendors not expected to engage in commerce with HUD, 

purchases made on holidays and weekends, and $74,500 in portable assets 

such as computer equipment and digital cameras. In these instances, it was 

not possible to determine what was purchased, for whom, and why. Some 

examples of these inadequately supported purchases are shown in the table 

below. 

Examples of Questionable Purchases Lacking Adequate Support 

Vendor description Vendor name Amount 

Department stores Dillard’s, JCPenney, Lord & Taylor, Macy’s, 

Sears $27,000 

Computers and electronics Ritz Camera, Sharper Image, Comp USA, 

PCMall 74,500 

Restaurants Legal Sea Food, Levis Restaurant, The 

Cheesecake Factory, TGI Fridays 9,700 

Music and audio stores Sound Craft Systems, J&Rs Music Store, 

Guitar Source 8,900 

Source: GAO Internal. 

 

The problems GAO identified with HUD’s purchase card program leave the 

agency vulnerable to wasteful, fraudulent, or otherwise improper purchases. 

Unless HUD makes specific improvements to its review and approval 

process, requirements for documentation and record retention, monitoring 

process, and remedial action plan, the department remains susceptible to 

fraud, waste, and abuse. 

HUD PURCHASE CARDS 

Poor Internal Controls Resulted in 

Improper and Questionable Purchases 

www.gao.gov/cgi-bin/getrpt?GAO-03-489.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact Linda Calbom 

at 202-512-8341 or by E-mail at 

calboml@gao.gov. 

Highlights of GAO-03-489, a report to the 

Secretary of Housing and Urban 

Development 

April 2003 

Due to HUD’s increasing use of 

purchase cards and the inherent 

risk associated with their use, 

Congress asked GAO to audit the 

purchase card program 

concentrating on assessing internal 

controls and determining whether 

purchases being made are a valid 

use of government funds. 

GAO is making several 

recommendations to strengthen 

internal controls including 

• developing and implementing a 

robust review and approval 

function to include requiring 

and performing a detailed 

review of relevant supporting 

documentation for each 

purchase, 

• establishing specific 

requirements for 

documentation and records to 

support each purchase, and 

• developing and implementing a 

formal monitoring process to 

assess the effectiveness of the 

enhanced review and approval 

process. 

HUD said that while it had made 

some improvements, it agreed that 

it still needed to strengthen its 

purchase card controls. HUD’s 

response listed actions to address 

five of the seven recommendations. 

GAO believes that HUD needs to 

address the remaining two 

recommendations as well. 
Page i GAO-03-489 HUD Purchase Cards

Contents

Letter 1

Results in Brief 2

Background 3

Scope and Methodology 5

HUD’s Internal Controls over Purchase Cards Did Not Provide 

Assurance That Improper Purchases Would Be Prevented or 

Detected 6

Control Weaknesses Contributed to Improper, Potentially Improper, 

and Questionable Purchase Card Transactions 9

HUD’s Remedial Action Plan to Correct Purchase Card Program 

Deficiencies Lacked Specificity 11

Conclusions 12

Recommendations for Executive Action 12

Agency Comments and Our Evaluation 13

Appendixes

Appendix I: Comments from the Department of Housing and Urban 

Development 16

Appendix II: GAO Contacts and Staff Acknowledgments 20

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Page 1 GAO-03-489 HUD Purchase Cards

United States General Accounting Office

Washington, D.C. 20548

A

April 11, 2003 Letr

The Honorable Mel Martinez

Secretary of Housing and Urban Development

Dear Mr. Secretary:

The use of purchase cards at the Department of Housing and Urban 

Development (HUD) has been steadily increasing over the last several 

years. During fiscal year 2001, purchase cards were used to make over 

24,000 purchases totaling more than $10 million compared to over 14,000 

transactions totaling more than $7.6 million in fiscal year 1997. Purchase 

cards are available to federal agencies under a General Services 

Administration (GSA) SmartPay Master Contract and may be used to make 

purchases with minimal paperwork. GSA administers the master contract 

and also provides purchase card program guidance for government 

agencies on its GSA Web site. Individual agencies are required to 

administer their own purchase card programs and set the parameters for 

use by authorizing employees, establishing dollar limits, and monitoring 

usage. The benefits of using purchase cards versus traditional contracting 

and payment processes are lower transaction processing costs and less 

“red tape” for both the government and the vendor community. While we 

support the use of a well-controlled purchase card program to streamline 

the government’s acquisition processes, it is important that agencies have 

adequate internal controls in place to protect the government from fraud, 

waste, and abuse.

Given HUD’s increasing use of purchase cards and the inherent risk in their 

use, we were asked to assess HUD’s purchase card activities.1

 Specifically, 

we were asked to determine if (1) HUD’s existing controls over the 

purchase card program provide reasonable assurance that improper 

payments will not occur or will be detected in the normal course of 

business and (2) payments for purchase card transactions are properly 

supported as a valid use of government funds. During the course of our 

work, the Office of Management and Budget (OMB) issued a memorandum 

requiring all agencies to develop a remedial action plan to manage the risk 

1

 This work was done as part of a broader body of work on which we testified last fall. [U.S. 

General Accounting Office, Strategies to Address Improper Payments at HUD, Education, 

and Other Federal Agencies, GAO-03-167T (Washington, D.C.: Oct. 3, 2002.)] We are 

currently assessing the effectiveness of internal controls over other disbursement processes 

at HUD and will report on the results of that work at a later date.
Page 2 GAO-03-489 HUD Purchase Cards

associated with purchase card usage. Because of this memorandum’s 

relevance, we expanded our work to include determining whether HUD’s 

remedial action plan effectively addressed its internal control weaknesses. 

Results in Brief Significant internal control weaknesses in HUD’s purchase card program 

made the agency vulnerable to and in some cases resulted in improper, 

potentially improper, and questionable purchases. During our review, 

which covered fiscal year 2001, we found that a preapproval process, 

required by HUD to help ensure the appropriateness of each purchase, was 

virtually nonexistent. Of the total $1.8 million purchase card transactions 

selected in the statistical sample,2

 $1.4 million lacked adequate supporting 

documentation for the approving official to determine the validity of the 

purchase. Nevertheless, these purchases were approved for payment. 

Based on the results of the sample, we estimate that $4.8 million3

 of the 

total sampled population of purchases ($10.6 million) lacked adequate 

supporting documentation. Additionally, HUD was not performing the 

required periodic reviews of purchase card transactions to assess 

compliance with its policies and procedures, thus preventing adequate 

monitoring of the purchase card program. These weaknesses, combined 

with the inherent risk of fraud and abuse associated with purchase cards, 

created an environment in which improper purchases could be made with 

little risk of detection. 

These control weaknesses likely contributed to the approximately 

$2.3 million in improper, potentially improper, and questionable purchases 

we identified during our review. For example, we identified improper split 

purchases and potential split purchases totaling over $1 million. Split 

purchases occur when multiple charges are made to the same vendor for 

one purchase in order to circumvent single purchase limits. We also 

identified questionable purchases, such as those made on holidays or 

weekends, and purchases made with vendors not routinely expected to 

engage in commerce with HUD. To determine whether these purchases 

were a valid use of government funds, we requested supporting 

documentation. HUD was unable to provide adequate supporting 

2

 We randomly sampled 222 transactions from a total of 23,688 transactions.

3

 We are 95 percent confident that the estimate is between $4,074,446 and $5,432,059. This 

estimate exceeds the tolerable amount in error of $1,059,046 (10 percent of the population 

total of $10,590,461).
Page 3 GAO-03-489 HUD Purchase Cards

documentation for 1,478 transactions totaling about $1.3 million or 43 

percent of the transactions we requested and 72 percent of the total dollars 

requested. These unsupported transactions included $27,000 to various 

department stores, $8,900 to music and audio stores, and $9,700 to 

restaurants. Because HUD was unable to provide adequate documentation 

for these purchases, we consider them to be a questionable use of 

government funds and therefore potentially improper.

HUD’s remedial action plan for its purchase card program does not 

effectively address its internal control weaknesses. Although HUD 

recognizes the need to improve its internal controls, its plan lacks specific 

commitment of time and resources to implement the proposed actions. 

Management’s commitment to improving internal control is necessary to 

reduce HUD’s vulnerability to future improper payments. 

Unless HUD’s management makes specific improvements to its review and 

approval process, requirements for documentation and record retention, 

monitoring process, and remedial action plan, HUD will continue to be 

susceptible to misuse of government funds. We are making 

recommendations in each of these areas. 

In commenting on a draft of this report, HUD agreed that further 

improvements are needed to strengthen the department’s purchase card 

controls and cited actions it is taking or plans to take to address five of our 

seven recommendations. Regarding the remaining two recommendations, 

we continue to believe that HUD needs to revise its remedial action plan to 

include the steps necessary to fully implement the proposed changes to 

strengthen internal controls. Also, HUD needs to follow up on the 

inadequately supported purchases identified during our audit.

Background HUD’s purchase card program is part of the governmentwide commercial 

credit card program established to simplify federal agency acquisition 

processes by providing a low-cost, efficient vehicle for obtaining goods and 

services from vendors. According to Federal Acquisition Regulation (FAR) 

Part 13.201(b), government purchase cards should be used for 

micropurchases, which are purchases up to $2,500.4

 The Department of the 

Treasury also requires agencies to establish approved uses and limitations 

4

 Certain construction purchases are limited to $2,000. 
Page 4 GAO-03-489 HUD Purchase Cards

on the types of purchases and spending limits. GSA administers the master 

contract and HUD’s purchase card policy was derived from the GSA 

governmentwide credit card program and tailored by HUD to meet its 

specific needs. During the period of our review—October 2000 through 

September 2001—HUD was operating under a policy dated October 1995. 

HUD is currently updating its purchase card policy. 

HUD’s purchase card policy states that purchase cards are intended to 

procure general-purpose office supplies and other support needs. The 

policy requires each approving official to develop a preapproval process to 

ensure that all purchase card transactions are authorized and in 

accordance with departmental and other federal regulations. The 

approving official signifies that a cardholder’s purchases are appropriate by 

reviewing and signing monthly statements. 

As required by the Department of the Treasury, HUD’s purchase card policy 

established approved uses and limitations on the types of purchases and 

dollar amounts in its purchase card policy. This policy also includes a 

detailed list of items that cardholders are prohibited from buying with their 

government purchase cards. For example, purchase or rental of 

nonexpendable property (generally defined as property of a durable nature 

with a life expectancy of at least 1 year), meals, drinks, entertainment or 

lodging, and construction costs exceeding $2,000 are generally prohibited.5

 

Fiscal year 2001 single purchase limits for individual cardholders, which 

are required to be established by the approving officials and approved by 

the departmental directors, ranged from $100 to $80,000, and their monthly 

limits ranged from $100 to $300,000. HUD was in the process of 

reevaluating and where applicable, lowering these limits. Bank One 

currently services the purchase card program at HUD.

Internal control is a major part of managing an organization and is key to 

ensuring proper use of government resources. As mandated by 31 U.S.C. 

3512, commonly known as the Federal Managers’ Financial Integrity Act of 

1982, the Comptroller General issues standards for internal control in the 

federal government.6

 These standards provide the overall framework for 

establishing and maintaining internal control and for identifying and 

5

 Under certain circumstances, some offices within HUD are permitted to purchase some of 

the prohibited items in the policy. 

6

 U.S. General Accounting Office, Internal Control: Standards for Internal Control in the 

Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
Page 5 GAO-03-489 HUD Purchase Cards

addressing major performance and management challenges and areas at 

greatest risk of fraud, waste, abuse, and mismanagement. According to 

these standards, internal control comprises the plans, methods, and 

procedures used to meet missions, goals, and objectives. 

Control activities are the policies, procedures, techniques, and mechanisms 

that enforce management’s directives and help ensure that actions are 

taken to address risks. Control activities are an integral part of an entity’s 

planning, implementation, review, and accountability for stewardship of 

government resources and achieving effective results. They include a wide 

range of diverse activities. Some examples of control activities include 

controls over information processing, physical control over vulnerable 

assets, segregation of duties, proper execution of transactions and events, 

and access restrictions to and accountability for resources and records.

Scope and 

Methodology

To determine whether HUD’s existing controls over the purchase card 

program provided assurance that improper purchases would be detected or 

prevented in the normal course of business, we interviewed HUD staff and 

performed walk-throughs of the process. We reviewed HUD’s policies and 

procedures and prior GAO reports as well as reports by HUD’s Office of 

Inspector General (OIG) and independent auditors on this topic. To test 

the effectiveness of internal controls, we selected a stratified random 

sample of 222 purchase card transactions made during fiscal year 2001 

totaling over $1.8 million from a population of purchase card transactions 

totaling $10.6 million. To identify potential improper purchases we 

requested and obtained fiscal year 2001 transaction data from Bank One 

and used data mining techniques7

 and other computer analyses to identify 

unusual transactions and payment patterns in HUD’s fiscal year 2001 

purchase card transaction data that may be indicative of improper 

purchases. 

In order to determine if fiscal year 2001 purchases were adequately 

supported and for a valid government use, we requested and analyzed 

supporting documentation for those transactions that we identified as 

potentially improper and questionable. While we identified some improper, 

7

 Data mining for improper payments involves using computer aided auditing techniques to 

highlight hidden patterns and relationships in data that help identify unusual transactions, 

which may be improper payments.
Page 6 GAO-03-489 HUD Purchase Cards

potentially improper, and questionable purchases, our work was not 

designed to determine the full extent of improper purchases. 

We requested comments from the Secretary of Housing and Urban 

Development. We conducted our work from November 2001 through 

November 2002 in accordance with generally accepted government 

auditing standards, and we performed our investigative work in 

accordance with standards prescribed by the President’s Council on 

Integrity and Efficiency. 

HUD’s Internal 

Controls over Purchase 

Cards Did Not Provide 

Assurance That 

Improper Purchases 

Would Be Prevented or 

Detected

HUD staff did not comply with key elements of its purchase card policies 

that would have helped minimize the risk of improper purchases, including 

(1) obtaining preapproval for purchases, (2) retaining adequate supporting 

documentation, (3) conducting supervisory review of all purchases, and 

(4) periodically reviewing purchase card transactions to ensure compliance 

with key aspects of the department’s policy. This created an environment 

where improper purchases could be made with little risk of detection and 

likely contributed to the $2.3 million in improper, potentially improper, and 

questionable purchases we identified through our data mining efforts. 

GAO’s Standards for Internal Control in the Federal Government8 states 

that transactions and other significant events should be authorized and 

executed only by persons acting within the scope of their authority. This is 

the principal means of assuring that only valid transactions to exchange, 

transfer, use, or commit resources and other events are initiated or entered 

into. To address these internal control standards, HUD’s purchase card 

policy contains fundamental controls designed to minimize the agency’s 

exposure to improper purchases. HUD’s policy requires each approving 

official to establish a preapproval process for each cardholder to ensure 

that all purchases are appropriate and for official government use. Further, 

HUD’s policy states that the approving official is required to review, certify, 

and monitor all cardholder purchases to ensure that they have the 

necessary approvals before purchases are made. Additionally, HUD’s 

purchase card policy requires that approving officials review each 

purchase along with the applicable supporting documentation in order to 

certify that the purchases were appropriate and a valid use of government 

funds. 

8 GAO/AIMD-00-21.3.1.
Page 7 GAO-03-489 HUD Purchase Cards

Based on our review of HUD’s purchase card process, we found that most 

approving officials had not established a preapproval process to ensure the 

appropriateness of purchases before they are made. Only the Information 

Technology Office routinely obtained authorization prior to purchasing 

items with the purchase card. The approving official’s review of each 

purchase card transaction is one of the most important controls to ensure 

that all purchases are a valid use of government funds. We found that this 

critical control was seriously compromised because of inadequate 

supervisory review of supporting documentation by approving officials. To 

test the effectiveness of this key internal control, we selected and tested a 

stratified random sample of 222 purchase card transactions made during 

fiscal year 2001. Of the total $1.8 million purchase card transactions 

selected in the statistical sample,9

 $1.4 million lacked adequate supporting 

documentation for the approving official to determine the validity of the 

purchase. Based on the results of this sample, we estimate that $4,753,25310

of the total sampled population of purchases ($10,590,461) made during 

fiscal year 2001 lacked adequate supporting documentation.

Our Standards for Internal Control in the Federal Government states that 

internal control activities help ensure that management’s directives are 

carried out. One such activity is the appropriate documentation of 

transactions. Internal control and all transactions and other significant 

events need to be clearly documented, and the documentation should be 

readily available for examination. All documentation should be properly 

managed and maintained.

We determined that some of HUD’s records supporting the purchase card 

program were not properly managed or maintained. For instance, HUD 

could not provide a complete and accurate list of all approving officials. 

When we attempted to contact cardholders and their respective approving 

officials to request supporting documentation using the list the agency 

provided, at least 28 approving officials provided written notification that 

cardholders assigned to them according to HUD records were not their 

responsibility. According to HUD officials, the purchase card program 

administrator is not routinely informed of changes in approving officials 

and often does not have the time to update the list regularly. Because HUD 

9

 We randomly sampled 222 transactions from a total of 23,688 transactions.

10 We are 95 percent confident that the estimate is between $4,074,446 and $5,432,059. This 

estimate exceeds the tolerable amount in error of $1,059,046 (10 percent of the population 

total of $10,590,461).
Page 8 GAO-03-489 HUD Purchase Cards

does not know who should be approving purchases, there is an increased 

risk of collusion as well as a general lack of accountability for ensuring the 

proper use of government funds. 

Another control activity that was available but not being used by HUD is 

blocking Merchant Category Codes (MCC). Blocking categories of 

merchants allows agencies to prohibit certain types of transactions that are 

clearly not business related, such as purchases from jewelry stores or 

entertainment establishments. During our review, we found that HUD was 

not blocking any MCCs. These blocks are available as part of HUD’s 

purchase card task order, under the GSA SmartPay Master Contract with 

Bank One. Because HUD did not take advantage of this control, there were 

no restrictions on the types of purchases employees could make during 

fiscal year 2001—the period of our audit. As a result of our audit work, on 

March 6, 2002, HUD began using selected MCC blocks.

Our Standards for Internal Control in the Federal Government states that 

internal control should generally be designed to assure that ongoing 

monitoring occurs in the course of normal operations. Internal control 

monitoring should assess the quality of performance over time and ensure 

that findings of audits and other reviews are promptly resolved. Program 

and operational managers should monitor the effectiveness of control 

activities as part of their regular duties. 

HUD’s purchase card policy requires the department to perform annual 

program reviews and report the results, including findings and 

recommendations, to the purchase card program administrator. However, 

HUD officials could locate only one such report. This November 2001 

report, prepared by a consultant, identified problems that were similar to 

the findings previously reported by the OIG in February 1999. 11 Both 

reports documented problems with weak internal controls and insufficient 

supporting documentation. The consultant’s report also noted that HUD 

was not performing the periodic program reviews required by its policies 

and that employees were making improper split purchases. HUD 

management agreed with the findings in the OIG report and developed and 

implemented an action plan to address the identified weaknesses. 

According to HUD OIG staff, its recommendations were implemented and 

have been closed since September 30, 2000. However, based on our 

11 Department of Housing and Urban Development Office of Inspector General, Commercial 

Credit Card Program, 99-DP-166-0001 (Washington, D.C.: Feb. 1, 1999).
Page 9 GAO-03-489 HUD Purchase Cards

findings, corrective actions taken at that time were not effective. The 

results of our control testing indicate that HUD’s lack of internal control 

over the purchase card process allows continued vulnerability to wasteful, 

fraudulent, or otherwise improper purchases by employees using 

government purchase cards. 

Control Weaknesses 

Contributed to 

Improper, Potentially 

Improper, and 

Questionable Purchase 

Card Transactions 

Poor internal controls created an environment where improper purchases 

could be made with little risk of detection. We define improper purchases 

as those purchases that include errors, such as duplicate charges and 

miscalculations; charges for services not rendered; multiple charges to the 

same vendor for a single purchase to circumvent existing single purchase 

limits—known as split purchases; and purchases resulting from fraud and 

abuse. We define questionable purchases as those that, while authorized, 

were for items purchased for a questionable government need as well as 

transactions for which HUD could not provide adequate supporting 

documentation to enable us to determine whether the purchases were 

valid.

We identified 88 transactions totaling about $112,000 that were improper 

split purchases. For example, one cardholder purchased nine personal 

digital assistants and the related accessories from a single vendor on the 

same day in two separate transactions just 5 minutes apart. Because the 

total purchase price of $3,788 exceeded the cardholder’s single purchase 

limit of $2,500, the purchase was split into two transactions of $2,388 and 

$1,400, respectively. These improper split purchases violate provisions of 

the Federal Acquisition Regulation and HUD’s own purchase card policy, 

which prohibits splitting purchases into more than one transaction to 

circumvent single purchase limits. We received documentation from some 

cardholders confirming that they split their purchases because they 

exceeded their single purchase limits, while one cardholder claimed the 

vendor independently split the purchases. 

We identified an additional 465 purchases totaling over $913,000 where 

HUD employees made multiple purchases from a vendor on the same day. 

Specifically, cardholders made multiple purchases totaling over $2,500 on 

the same day from the same vendor. Although we were unable to 

determine definitively whether these purchases were improper, based on 

the available supporting documentation, these transactions share similar 

characteristics with the 88 split purchases, and therefore we consider these 

transactions to be potentially improper.
Page 10 GAO-03-489 HUD Purchase Cards

We also found 2,507 transactions, totaling about $1.3 million, with vendors 

that would not routinely be expected to engage in commerce with HUD. In 

order to determine whether these questionable purchases were a valid use 

of government funds, we requested supporting documentation for each 

purchase. HUD was able to provide us with adequate supporting 

documentation for 1,324 transactions totaling about $412,000. The 

department was unable, however, to provide adequate support for the 

remaining 1,183 transactions (47 percent of total transactions requested) 

totaling about $869,000 (67 percent of total dollars requested). 

Additionally, we found 940 transactions, totaling about $554,000, where the 

purchases were made either on a weekend or holiday. We requested 

supporting documentation for each of these transactions. HUD was able to 

provide us with adequate support for 645 transactions totaling about 

$189,000. HUD was unable to provide adequate support for the remaining 

295 transactions (31 percent of total transactions requested) totaling over 

$364,000 (66 percent of total dollars requested). In these instances, we 

were unable to determine what was purchased, for whom, and why.

Some examples of the questionable vendor transactions for which we did 

not receive adequate support included over $27,000 to various department 

stores such as Best Buy, Circuit City, Dillard’s, JCPenney, Lord & Taylor, 

Macy’s, and Sears; over $8,900 to several music and audio stores including 

Sound Craft Systems, J&R’s Music Store, Guitar Source, and Clean Cuts 

Music; and over $9,700 to various restaurants such as Legal Sea Food, Levis 

Restaurant, The Cheesecake Factory, and TGI Fridays. Additional 

examples of questionable or potentially improper purchases we found 

include $25,400 of “no show” hotel charges for HUD employees who did not 

attend scheduled training and $21,400 of purchases from vendors who 

appear to have been out of business prior to the purchase. Because HUD 

was unable to provide adequate documentation for these purchases, we 

consider them to be a questionable use of government funds and therefore 

potentially improper purchases. 

We also have concerns about HUD’s accountability for computer and 

related computer equipment bought with purchase cards because of the 

large volume of transactions for which it did not have appropriate 

documentation. For example, our testing revealed that HUD employees 

used their purchase cards to buy portable assets, such as computer 

equipment and digital cameras, totaling over $74,500 for which they have 

provided either no support or inadequate support. In HUD’s August 28, 

2002, purchase card remedial action plan, discussed in more detail in the 

next section, HUD acknowledged that items bought with purchase cards 
Page 11 GAO-03-489 HUD Purchase Cards

were not being consistently entered in the department’s asset management 

system. As a result, portable assets became vulnerable to loss or theft. In 

our follow-up work, we plan to determine whether these items are included 

in HUD’s asset management system and are being appropriately 

safeguarded. 

HUD’s Remedial Action 

Plan to Correct 

Purchase Card 

Program Deficiencies 

Lacked Specificity

OMB’s April 18, 2002 memorandum, M-02-05, requires all agencies to 

develop remedial action plans to manage the risk associated with purchase 

card usage. Agencies were required to submit their plans to the Office of 

Federal Procurement Policy no later than June 1, 2002. HUD’s remedial 

action plan was submitted to OMB on May 31, 2002. Our review of HUD’s 

remedial purchase card action plan found that it did not address all the 

weaknesses we identified. Although HUD’s plan includes steps for 

resolving and preventing a number of potential problem areas, including 

the need for (1) adequate monitoring, (2) more frequent internal audits, 

(3) accountability and penalties for misuse of cards, (4) updating the 

agency handbook, (5) spending limits in line with purchasing requirements, 

(6) adequate program records, including proper approving officials, and 

(7) entering property purchased with purchase cards in the inventory 

system, the plan falls short in other key areas. 

For example, the plan did not include requirements for (1) a robust review 

and approval function for purchase card transactions, focusing on 

identifying split purchases and other inappropriate transactions, (2) a 

process to periodically assess the effectiveness of the review and approval 

process, and (3) specific documentation and records to support the 

purchase card transactions. In addition, the remedial plan lacked specifics 

as to how and when HUD would implement it. On August 16, 2002, OMB 

returned HUD’s remedial action plan and asked that a timeline be 

incorporated. 

HUD submitted a new plan to OMB on August 28, 2002. While the revised 

remedial action plan includes a broad timeline for completion of each 

objective, we found that it still does not adequately address key control 

weaknesses we identified, in part because it lacks specific steps necessary 

to fully address identified problem areas. In addition, the revised remedial 

action plan does not require the program administration staff to begin 

designing a monitoring plan to assess HUD’s compliance with key aspects 

of its purchase card policy until the second quarter of fiscal year 2003 and 

does not give an estimated date for when this key internal control will be 

implemented. Additionally, the revised plan does not specifically identify 
Page 12 GAO-03-489 HUD Purchase Cards

who is responsible for developing or implementing any of the proposed 

improvements. 

Conclusions The problems we identified with HUD’s purchase card program leave the 

agency vulnerable to wasteful, fraudulent, or otherwise improper 

purchases. The remedial action plan prepared by HUD is an important first 

step toward addressing the control weaknesses we identified. At the same 

time, much still remains to be done to effectively control the inherent risk 

in HUD’s purchase card program. HUD management will have to 

effectively follow through on its implementation plan and expand the plan 

to improve its review and approval process, requirements for 

documentation and record retention, monitoring process, and remedial 

action plan or HUD will continue to be susceptible to misuse of 

government funds. 

Recommendations for 

Executive Action 

To strengthen its internal control over the purchase card program and 

reduce HUD’s vulnerability to improper purchases, we recommend that the 

Secretary direct the Assistant Secretary for the Office of Administration to 

take the following actions:

• implement the preapproval requirement in the existing purchase card 

policy;

• develop and implement a robust review and approval function for 

purchase card transactions, focusing on identifying split purchases and 

other inappropriate transactions, and on performing a detailed review of 

relevant supporting documentation for each purchase;

• update the list of approving officials and their designated cardholders 

quarterly to ensure accuracy and completeness;

• establish specific requirements for documentation and records to 

support all purchase card purchases;

• develop and implement a formal monitoring process to periodically 

assess the effectiveness of the enhanced review and approval process;
Page 13 GAO-03-489 HUD Purchase Cards

• revise the remedial action plan for purchase cards to include the 

specific steps necessary to fully implement the above five 

recommendations; and

• follow up on the purchases we identified for which cardholders did not 

provide adequate supporting documentation to determine the validity 

and the propriety of the purchases. 

Agency Comments and 

Our Evaluation

In written comments on a draft of this report, which are reprinted in 

appendix I, HUD agreed that further improvements are needed to 

strengthen the department’s purchase card controls. Although HUD did 

not specifically agree or disagree with our individual recommendations, the 

actions being taken or planned by the agency address five of our seven 

recommendations. 

For example, in response to our recommendation to implement the 

preapproval requirement in the existing purchase card program, HUD 

stated that it has always had an effective preapproval process in its field 

offices through the Automated Client Response System (ACRS). While we 

agree that this system is available for use, during our review of supporting 

documentation, we found no evidence that cardholders were utilizing this 

system. To improve its preapproval process at its headquarters, HUD 

stated that it has implemented the mandatory use of HUD Form 10.4, 

Requisition for Supplies, Equipment, Forms, Publications, and 

Procurement Services. 

In addition, to enhance its review and approval function, HUD said it had 

provided mandatory training in January 2003 to approving officials on the 

procedures for reviewing and approving cardholder statements. HUD also 

said that it was working with Bank One to provide training to cardholders 

and approving officials on the use of the automated purchase card system 

and the monitoring tools available through Bank One. HUD also stated that 

as of January 2003, a review of the approving officials will be performed 

and the Agency Program Coordinator will make the necessary changes 

quarterly to ensure the list is accurate and complete. 

To ensure proper supporting documentation is maintained for all 

purchases, HUD also noted that it provided training to cardholders and 

approving officials starting in January 2003. Additionally, HUD stated that 

in October 2002, a staff person was assigned to begin performing planned 

internal reviews and random spot reviews of purchase card transactions 
Page 14 GAO-03-489 HUD Purchase Cards

with reports to be issued on an interim basis as the reviews are completed 

to ensure that proper management and internal controls are maintained 

over the authorization of purchases and use of the purchase card. These 

actions will be helpful in strengthening the purchase card controls at HUD. 

HUD did not state what, if any, action it planned to take regarding the two 

remaining recommendations. Regarding our recommendation to revise its 

remedial action plan, HUD stated that the plan adequately met the 

requirements set forth by OMB. While the plan may address the elements 

required by OMB, we do not believe it lays out an adequate approach for 

resolving identified control weaknesses. As discussed in the report, the 

plan lacks the specific steps necessary to fully implement the proposed 

changes to strengthen internal controls. 

Concerning follow-up on inadequately supported purchases we identified, 

HUD stated that it had provided documentation when asked and would 

provide more if necessary. On July 8, 2002, we provided HUD with a 

compact disk containing all transactions for which we received either no 

support or inadequate support during our fieldwork and allowed an 

additional 3 weeks for the agency to provide the supporting 

documentation. We have not received any additional supporting 

documentation since then. It is our view that HUD has a fiduciary duty to 

follow up on the inadequately supported purchases, which total about 

$2.1 million and represent 57 percent of the total purchase transactions we 

tested, to ensure their propriety. HUD offered several additional technical 

comments, which have been incorporated into this report as appropriate.

This report contains recommendations to you. The head of a federal 

agency is required by 31 U.S.C. 720 to submit a written statement on 

actions taken on these recommendations to the Senate Committee on 

Governmental Affairs and the House Committee on Government Reform 

and Oversight within 60 days of the date of this report. You must also send 

a written statement to the House and Senate Committees on 

Appropriations with the agency’s first request for appropriations more than 

60 days after the date of this report.

We are sending copies of this report to the Chairmen and Ranking Minority 

Members of the Senate Committee on Governmental Affairs and the House 

Committee on Government Reform, the Director of Office of Management 

and Budget; and other interested parties. We also will make copies 
Page 15 GAO-03-489 HUD Purchase Cards

available to others upon request. In addition, the report will be available at 

no charge on the GAO Web site at http://www.gao.gov.

Should you or your staff have any questions on matters discussed in this 

report, please contact me at (202) 512-8341 or by E-mail at 

calboml@gao.gov.

Sincerely yours,

Linda Calbom

Director, Financial Management and Assurance
Page 16 GAO-03-489 HUD Purchase Cards

Appendix I

Comments from the Department of Housing Apendxies

and Urban Development ApendxiI
Appendix I

Comments from the Department of Housing 

and Urban Development

Page 17 GAO-03-489 HUD Purchase Cards
Appendix I

Comments from the Department of Housing 

and Urban Development

Page 18 GAO-03-489 HUD Purchase Cards
Appendix I

Comments from the Department of Housing 

and Urban Development

Page 19 GAO-03-489 HUD Purchase Cards
Page 20 GAO-03-489 HUD Purchase Cards

Appendix II

GAO Contacts and Staff Acknowledgments ApendxiI

GAO Contacts Dan Blair, (202) 512-9401

Acknowledgments In addition to the contact named above, Sharon Byrd, Lisa Crye, Sharon 

Loftin, and Julie Matta made key contributions to this report.

(190083)
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